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Deckers Outdoor (DECK -17%) is getting trampled today despite delivering a decent beat-and-raise in Q3 (Dec). The shoemaker, known for its brands UGG, HOKA, and Teva, had been on a monster run leading into Q3 results last night. Since gapping higher on a beat-and-raise Q2 (Sep) report in late October, the stock tacked on an additional +30%, reaching all-time highs yesterday. This level of appreciation put Q3 numbers under a microscope.

What is disappointing investors today? Guidance is at the forefront of today's selling pressure. While DECK hiked its FY25 (Mar) outlook, it was slightly milder than analysts anticipated, mainly on the top line. DECK projected FY25 revs of $4.9 bln, equivalent to increasing its prior forecast by the size of its top-line beat in Q3, meaning that the raise does not incorporate additional upside in Q4.

DECK has a history of issuing conservative guidance. However, this time, investors are not quickly shrugging it off. The problem stems from inventory, primarily with the UGG banner. The brand experienced a robust December selling period yr/yr, aided by DECK's increased and earlier inventory position -- its strategy to avoid the pitfalls of last year when it sold out of key styles that were later fulfilled in Q4. However, unlike last year, when this acted as a tailwind to Q4, it is having the reverse impact this year, benefiting Q3 at the expense of Q4. While this issue does not paint a deteriorating demand picture, it is enough to trigger selling pressure today, given DECK's valuation and subsequent lofty expectations.

That said, there were still plenty of highlights from Q3 showcasing a steady appetite for DECK's brands, especially when stacked against rivals like NIKE (NKE), whose recent Q3 (Feb) guidance, which included another quarter of yr/yr revenue compression, illuminated the challenges associated with mounting a comeback.

• In Q3, DECK posted EPS of $3.00, delivering gross margin expansion of 160 bps yr/yr to 60.3%. However, DECK cautioned that this level of margin expansion is not the norm. The company noted that high levels of full-price selling combined with low levels of wholesale closeouts are abnormal and should not be counted on going forward.
• Revenue grew 17.1% yr/yr to $1.83 bln, lifted by solid gains in UGG and HOKA, which increased net sales by 16.1% and 23.7%, respectively. Geographically, international net sales growth continued to outpace domestic growth, climbing by 28.5% yr/yr to $657.9 mln versus an 11.5% improvement to $1.169 bln. DTC and wholesale sales growth were similar, rising by 17.9% and 16.2%, respectively.
• Looking ahead to FY26, DECK provided a few color comments, noting that it has an exciting pipeline of upcoming products. Part of its strategies for next year involves expanding its DTC business through consumer acquisition and retention and bolstering its international presence by implementing its domestic playbook.

Bottom line, while DECK's Q3 report underscored sustained demand, its inventory-related headwinds eroded Q4 revenue prospects, spurring substantial selling pressure today following a massive rally leading into Q3 results.